During the October meeting of the State Teachers Retirement Board,
actuarial consultant Segal Consulting presented key findings from itsJuly 1, 2017, annual pension valuation report. This report provides a detailed look
at the financial health of the pension fund. The most common ways to express the system’s financial condition are through
the funded ratio and the funding period. This year’s valuation report shows the funded ratio — the value of assets
compared to actuarial accrued liabilities (benefits earned by members of the system) — improved to 75.1% from 69.6%
last year. The funding period — the amount of time needed to pay off the system’s unfunded liability under current
assumptions and benefit levels — also improved, decreasing to 18.4 years from 26.6 last year. Segal shared that without
the board’s action to reduce cost-of-living increases granted on or afterJuly 1, 2017, to 0%, STRS Ohio’s funded ratio would be just 66.6% and
the funding period would have increased to 50.4 years.

Investment
returns for the 2017 fiscal year topped 14% and also helped account for part of the funding improvement. Segal noted that
the pension fund has a net $155 million in deferred investment gains that will be recognized over the next three years. STRS
Ohio uses a common actuarial technique called “smoothing” to spread investment market volatility over a four-year
window rather than a one-year “spike.” Last year’s valuation report showed a net $2.8 billion in deferred
losses to be recognized.

The valuation report measures
two sets of assumptions — economic and demographic — against the retirement system’s actual experience from
the past year. Economic measures include the rate of inflation, return on assets, salary increases and payroll growth. Demographic
measures include retirements, disability inceptions, withdrawals and mortality (the number of deaths among active members
and benefit recipients).

This year’s valuation
report included the updated actuarial assumptions the board adopted in March. These new assumptions included reducing the
expected investment return to 7.45%, updating to generational mortality tables to recognize that STRS Ohio retirees are living
longer, reducing the inflation assumption and reducing overall expected payroll growth.

Despite the improvement in the funding status, because of the volatility
around investment returns, staff estimates STRS Ohio faces about a 30% chance that the pension fund drops below a 50% funded
ratio in the next 10 years.

Retirement Board
Adopts Health Care Subsidy Plan for 2019 and Beyond That is Designed to Extend the Life of the Health Care Fund

At its October meeting the Retirement Board adopted a new plan for
providing health care premium subsidy assistance to benefit recipients who are enrolled in the STRS Ohio Health Care Program.The new subsidy strategy will go into effect in 2019 and will not affect the
2018 health care plan or premiums.

Since STRS Ohio
health care plan enrollees are eligible for Medicare for most of their retirement years, the board-approved subsidy plan will
offer greater protection against health care inflation for Medicare enrollees than for non-Medicare enrollees. Under the new
subsidy plan, benefit recipients who are enrolled in an STRS Ohio health care plan under Medicare will receive a subsidy that
will grow with health care inflation up to a cap of 6%. Non-Medicare enrollees will receive the same subsidy dollar amounts
that are offered in 2018; however, this dollar amount will not grow with inflation in the future.

The newly adopted plan is projected to extend the solvency of the Health Care Fund to the year 2047.
The fund previously was estimated to remain solvent through 2034. Additional details on subsidies, plan design and 2019 plan
premiums will be shared in the spring/summer 2018 newsletters.

Annual Statements of AccountMailed to Members

Members began receiving theirAnnual Statementsfor the Defined Benefit Plan at the end of September. Mailing
continued through mid-October for the Combined Plan and Reemployed Retiree statements. Many STRS Ohio members have chosen
paperless delivery of theirAnnual Statementand
instead view the statement through their Online Personal Account. Nearly 59,000 members have now opted out of receiving paper
statements. Regardless of whether a member received a paper statement, all members can view a PDF version of their statement
through the STRS Ohio website’s Online Personal Account section.

Public Participation at Retirement Board Meetings Moves to Mornings; Next Meeting Scheduled for Dec. 14

In response to member requests, the Retirement Board is moving the public participation
portion of future board meetings to a morning time slot. Public comments will now take place mid-morning, typically following
the report from the Investment Department. This is expected to be between 9:30 and 11 a.m., depending on the length of
the agenda. STRS Ohio members requested the opportunity to speak before the current after-lunch time slot so they can express
their views before the board takes actions during the day. The new schedule will begin at the board’s next scheduled
meeting on Dec. 14.

Retirements Approved

The Retirement Board approved 281 active members and 91 inactive members
for service retirement benefits.

During the
September meeting of the State Teachers Retirement Board, the board continued its discussion on the solvency of the Health
Care Fund and how to provide a meaningful subsidy for plan enrollees. The Health Care Fund has a balance in excess of $3 billion
and is currently estimated to remain solvent through 2034. Solvency is largely driven by the subsidy provided to each enrollee
— both the initial subsidy level and the growth of the subsidy. The STRS Ohio Health Care Program is currently funded
through premiums charged to plan enrollees, government reimbursements and investment earnings on the fund. STRS Ohio no longer
allocates a portion of employer contributions to the Health Care Fund, as all of the employer contributions are needed to
fund pensions.

Finding solutions for health care funding is challenging for several reasons.
The board has already implemented many cost-saving options available through plan design changes, and health care trend projections
provided by Segal Consulting show expected cost increases (trend rate) to continue to grow over the next decade. With no dedicated
source of income for the Health Care Fund, the board has been reviewing premium subsidy strategies that include a cap to extend
the life of the fund. Most of the cost models reviewed are projected to extend the solvency period for the Health Care Fund
to 30 years or more. Under these cost models, long-term costs are expected to grow for all enrollees. The cost models under
consideration maintain a higher premium subsidy percentage for Medicare enrollees than for non-Medicare enrollees.

The board will continue its discussion on the health care program at its October meeting. The changes being discussed
will not impact the 2018 plan design or subsidy level.

Retirements Approved

The
Retirement Board approved 349 active members and 93 inactive members for service retirement benefits.

STRS Ohio is preparing Annual Statements
for distribution to members in late September. Members have shown a growing interest in receiving their Annual Statement
online through their password-protected Online Personal Account. More than 52,000 members have now opted to view their Annual
Statement online rather than receiving a printed Annual Statement through the mail.

STRS
Ohio completed its actuary file and sent it to Segal Consulting for the fiscal 2017 valuation. This year’s file continues
to shed light on STRS Ohio retiree longevity. As of June 30, 2017,
STRS Ohio had 190 benefit recipients who are age 100 or older — an increase from 171 last year. The 190 individuals
include 172 women and 18 men. Most of these centenarians are service retirees; however, 55 are beneficiaries of retirees or
survivors of an active member who died, and one is a disability recipient. The oldest STRS Ohio retiree is now 107 years old,
having retired in 1973. She began teaching in 1930.

The retiree who has been receiving benefits
the longest is a 104-year-old recipient who retired in 1969 at age 56 after 35 years of service. STRS Ohio has been paying
this retired educator for 48 years.

Active members have their own type of longevity
in the classroom, with 12 members having 50 or more years of service and 121 members exceeding 40 years of service in the
classroom.

STRS Ohio’s Investment Return in Fiscal 2017 Is a Positive Step for the Fund

At the August meeting of the State Teachers Retirement Board, Investment Department
staff reported that STRS Ohio’s total fund return for the year endingJune 30, 2017, was +14.29%. This follows returns of +0.92% in fiscal year
2016 and +5.45% in fiscal 2015. The fiscal 2017 return beat the total fund benchmark by 0.63%. The system’s active management
of the funds, rather than relying on index funds, added approximately $400 million in value after all investment costs during
the fiscal year. Total fund assets were $75.1 billion as ofJune 30, 2017.

STRS
Ohio’s fiscal 2017 total fund return ranked in the top 20% of Callan Associates’ public fund sponsor database.
Callan serves as an investment consultant to the Retirement Board. The strong performance was led by a +22.2% return on international
investments (vs. a benchmark return of 21.6%) and a +19.6% return on domestic equities (vs. a benchmark return of 18.5%).

The solid year for investment returns is a positive step for STRS Ohio
in a longer journey to strengthen the financial condition of the pension fund. While stock market performance has been solid
since the November election, STRS Ohio’s investment consultants continue to call for lower than normal returns over
the next decade. At the Retirement Board’s October meeting, actuarial consultant Segal Consulting will present the results
of its annual pension valuation report. This report will show the financial impact of the investment return, the cost-of-living
reduction and several other factors that affect the retirement system’s funding position. The report is expected to
reflect that fiscal 2017 was a favorable financial year for STRS Ohio.

STRS Ohio’s Long-Term Returns

5-yeartotal fund return:10.06%

10-yeartotal fund return:5.48%

20-yeartotal
fund return:7.02%

30-yeartotal
fund return:8.39%

Assumed actuarial rate of return:7.45%

Board Continues Discussion on Plan to Improve Solvency of the Health Care Fund

The board continued its study of options to extend the life of STRS Ohio’s
Health Care Fund. The fund has a balance of about $3.2 billion and is currently estimated to remain solvent for about 18 years.
Solvency is largely driven by the subsidy provided to each enrollee, both the initial subsidy level and the growth of the
subsidy. The STRS Ohio Health Care Program is currently funded through premiums charged to plan enrollees, government reimbursements
and investment earnings on the fund. STRS Ohio no longer allocates a portion of employer contributions to the Health Care
Fund, as all of the employer contributions are needed to fund pension benefits.

The health care trend projections provided by Segal Consulting show expected cost increases (trend rate)
to be significant over the next decade. The board is reviewing cost models that cap subsidy increases in order to extend the
life of the fund. Long-term costs are expected to grow for all enrollees, and most of the cost models maintain a higher premium
subsidy percentage for Medicare enrollees than for non-Medicare enrollees. The board will continue its discussion on the health
care program at its September meeting. The changes being discussed will not impact the 2018 plan design or subsidy level.

Fiscal 2017 Operating Expenses Total $340,000 Less Than Budget

Final figures for fiscal year 2017 show that STRS Ohio’s operating expenditures
were approximately $340,000 less than the operating budget approved for the fiscal year. Administrative expenses totaled $96.5
million for the fiscal year that ended onJune 30, 2017.
STRS Ohio posts approved administrative expenses on its website following each board meeting.

CEM Benchmarking Ranks STRS Ohio First in Member Service for Second Year in a
Row

CEM Benchmarking, a leading global benchmarking company,
reviewed with the board the results of its Pension Administration Benchmarking report for fiscal year 2016. STRS Ohio was
benchmarked against 51 leading global pension systems from the United States, Canada, Denmark and The Netherlands. STRS Ohio’s
service level score was the highest among all participants. STRS Ohio’s Member Services Center received the top service
level score as well.

The CEM study also measures systems’
costs to provide service. Since 2013, STRS Ohio’s cost per member has decreased by an average of 1.2% per year, while
the average costs for the peer group have increased by 1.3% per year.

Retirements Approved

The Retirement Board approved
1,113 active members and 222 inactive members for service retirement benefits.

More than 12,000 enrollees have chosen to go online for 2018 health care open-enrollment information, accessing
the materials through their Online Personal Account. This option saves STRS Ohio the cost of printing and mailing these materials.
Enrollees who choose the paperless option will receive an email when open-enrollment information is available and can access
it through the Online Personal Account section of the STRS Ohio website. Enrollees can make the paperless selection by logging
in to their personal account and updating their correspondence preferences.

STRS Ohio has streamlined the printed open-enrollment packet that will be mailed to enrollees who do not
choose the paperless option. Since the benefit plan remained largely the same in 2018, the open-enrollment guide has been
eliminated and the packet will mail in a standard business envelope that will be marked “Your health care open-enrollment
materials are enclosed” to draw attention to the mailing. The packets will mail in late October.